Tax and Trusts

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Expatriate and international tax planning

Expatriate and international tax planning

Tax often represents the biggest financial outlay over the course of your entire lifetime. 

Ensuring you don’t pay more than is due can be difficult.  

Whether to help meet increasingly complex tax obligations, or to help you plan ahead for your future and your family's future - our specialists advisers can assist you.

LEARN MORE ABOUT TAXES FOR EXPATS

International tax compliance

International tax compliance

In a global environment of heightened scrutiny and increasing penalties, making sure you comply with tax rules has never been more important - or challenging.

Cross-border tax involves complicated rules, and a considerable amount of time and stress.

Having access to specialist tax advisers, who will ease the burden of meeting your obligations and turn things around quickly and efficiently, can give you considerable peace of mind.

Cross-border taxation

Cross-border taxation

With international tax rules subject to constant change, it’s essential that you regularly review yours and your family’s tax affairs, and plan accordingly.

For many expatriates, international tax planning affects all facets of their financial affairs. You may be worried about the impact that rises in property values are having on inheritance tax, how best to dispose of a share in a business, or the most efficient way to pass on your estate. 

Whatever your needs, being able to structure your personal tax affairs effectively can save you time, money and effort.

 

“My wife and I were planning a move back to the UK and originally wanted an IHT plan. In the end we ended up with an IHT plan, and with a blend of trust structures, a low-tax income as well. AES exceeded our expectations. We're delighted.”

J. P. Davies

“My family and I approached AES with a very complicated set of requirements related to succession planning, business protection and ongoing investment management. Their service is amazing - and in the areas of trusts and mitigating taxation they are second to none.”

Simon Cathcart

“Can't recommend AES highly enough - they aren't your average financial advisers - their technical knowledge and ability to apply it is highly professional.”

Sarah Richards

    International Trusts

    International trusts

    International succession planning, tax and trust laws are complex and sensitive areas.  They require specialist expertise and considerable care.

     Offshore trusts offer many benefits for expatriates:

    • Protecting personal wealth from gains and income taxes;
    • Protecting business assets;
    • Creating an international tax plan for cross-border interests;
    • Reducing or removing an estate's inheritance tax liability.

    LEARN ABOUT DIFFERENT TYPES OF TRUSTS

    International trust

    Do you need a trust?

    • You may want to place assets in trust for estate and succession planning reasons.
    • You may be looking to reduce your overall tax liability.
    • Perhaps you're unsure of the wealth of opportunity you have as an expat.

    We help create international trust structures for clients, as well as internationally compliant taxation reduction and mitigation strategies, on a daily basis.

     

    Expat guide to UK residency rules

    Residence and domicile tax planning

    Download our guide and stay informed

    Whether you're onshore or off, a UK tax resident or a British expat, ensuring your tax affairs are in order can require cross-border expertise. Complex tax filing, unfamiliar and changing rules, or just the structure of remittances all make early advice important. If you're planning to remain in the UK for the long-term, it is also important to plan ahead for the point at which you will become ‘deemed’ UK domiciled. In these circumstances, inheritance tax planning is especially relevant.

    Property Tax Issues

    Property tax issues

    As an international property owner, developer or investor it’s crucial you get the best advice on the tax implications of buying, owning and selling property, as well as relating to ever-changing tax legislation. 

    For example, if you’re a landlord with buy-to-let property in the UK, how will you be affected by changes such as the phasing in of a reduction in income tax relief on finance costs?

    Other issues you may need help with include the appropriate structure for commercial and residential property ownership and disposal, and how that impacts capital gains tax, stamp duty land tax, annual tax on enveloped dwellings and any potential sale.

    Frequently asked questions

    What is income tax, how does it apply in the UK and how are British expats affected by it?

    Income tax is levied on earned income.  However, the tax is not paid on all forms of income - for instance the main types of relief and exemptions are:

    • Interest on savings
    • Some state benefits
    • Income from a trust
    • National Lottery wins or other gambling income.
    • Income from tax advantaged accounts such as Individual Savings Accounts (ISAs) and National Savings Certificates.

    There are different bands for the rate of income tax in the UK as follows:

    Income amount

    Tax rate

    Up to £11,500

    0%

    From £11,501 to £45,000

    20%

    From £45,001 to £150,000

    40%

    Over £150,000

    45%

     

    Each individual usually has a tax-free personal allowance each year which in the 2016/2017 tax year is £11,500.

    For every two pounds of income above £100,000 an individual loses one pound of their personal allowance.

    Therefore, at £123,000 of income an individual will have lost their entire personal allowance, and will pay tax on income immediately.

    If you leave the UK in a tax year to work abroad then you will typically have what is known as a split tax year.   

    Income tax will be payable until the date that you leave the UK, and would not be payable on earnings accrued outside of the UK after the date of leaving - hence the term ‘split tax year’ referring to two tax periods, one on which tax is payable and one on which tax is not payable. 

    What is capital gains tax and how does it apply to UK assets?

    Capital gains tax is a tax that is applied to assets owned by an individual which they liquidate, typically this is applied to investments and property when sold.

    Each individual usually has a capital gains exemption each year, which in the 2016/2017 tax year is £11,300.

    Standard rates – 10% basic rate tax payer, 20% higher rate tax payer

    Residential property Sales – 18% basic rate, 28% higher rate tax payer.

    What is inheritance tax and how does it apply to Britons and UK residents?

    Inheritance tax is applied to the estate of all UK domiciled individuals upon their death. 

    Your country of domicile is usually the place that your father considered his home at the time of birth. 

    Unlike your country of residence which is altered when you move abroad, your country of domicile is very difficult to change, it is dependent upon you severing all ties with your old home nation and living outside of that nation for a long time. 

    Inheritance tax is levied at a rate of 40% on anything above what’s called a nil rate band.  The current nil rate band (NRB) is £325,000 per individual. 

    Gifts to your spouse are not taxable and your NRB can be passed to your spouse along with your assets.  Therefore, if your spouse dies after you they will have a NRB of £325,000 x 2 or £650,000 if your assets are passed in whole to your spouse.

    Gifts to charity are tax free and a reduced IHT rate of 36% applies to your estate where more than 10% of your net estate is left to charity.

    There is IHT relief on other gifts made as long as you survive 7 years after making them.  Otherwise inheritance tax is payable on gifts on a sliding scale.

    Years before death gift was made

    Percentage of IHT payable

    0-3 years

    100%

    3-4 years

    80%

    4-5 years

    60%

    5-6 years

    40%

    6-7 years

    20%

    What is a trust?

    A trust is an obligation binding a trustee (which can be an individual or a company) to take care of assets for the benefit of one or more other individuals known as beneficiaries.

    The individuals who run the trust usually make decisions about how the assets in the trust are to be managed and dispersed - they are known as trustees. 

    Trustees carry out the wishes of the person who has setup the trust and contributed the assets into the trust.  This person is known as the settlor.

    A settlor typically makes their intentions known for the trust in a legal document called a trust deed or in their will.

    What are the main forms of trusts?

    A bare trust 

    A bare trust - otherwise known as an absolute trust - is one where the beneficiary, the person who benefits from the trust, has an immediate and absolute right to both the trust capital and the income received by the trust from that capital.

    Someone who sets up a bare trust is certain of the beneficiaries they intend, because, once the trust has been set up, the beneficiaries cannot be changed.

    The trust assets are legally held in the name of a trustee or trustees, but the trustees cannot change how the income or capital is passed on to the beneficiary or beneficiaries.

    Bare trusts are commonly used to transfer assets to minors.  Trustees hold the assets on trust until the beneficiary is 18 in England and Wales.  At this point, beneficiaries can demand that the trustees transfer the trust fund to them.

    Interest in possession trust

    An interest in possession trust is one where one beneficiary of a trust has an immediate and automatic right to the income from the trust as it arises. 

    The trustee must pass all of the income received, less any trustees’ expenses, to this beneficiary.

    The beneficiary who is entitled to the income of the trust for life is known as a life tenant.  A beneficiary who is entitled to the trust capital is known as the remainderman.

    They typically receive the capital from the trust upon the death of the life tenant .

    What is a discretionary trust?

    In a discretionary trust, the trustees are the legal owners of any assets held in the trust.  They are responsible for managing the trust for the benefit of the beneficiaries.

    The trustees have discretion as how to use the income received by the trust.  They may also have discretion about how to distribute the trust’s capital.

    Trustees may decide:

    • When assets are paid out;
    • To whom payments are made;
    • How often these payments are made;
    • Conditions to impose on the recipients.
    Would a trust benefit me?

    A trust can help an individual in various ways, the main uses are as follows:

    • As part of effective inheritance tax plan
    • To avoid the complications of estate administration on death
    • To prevent wills and probate disputes
    • To protect your intended beneficiaries from inheriting too early, coercion or losing assets on divorce or bankruptcy
    What sort of trust should I use?

    This is a difficult question to answer as it is one that depends entirely on your circumstances as well as your goals and objectives.

    By working with a fee based financial planner you can be sure that your circumstances are considered, and an efficient approach is used.

    Interestingly, through combining different forms of trusts an individual can create a portfolio which will provide significant protection against inheritance tax on their estate, but also provide a fixed income or / and the ability to recall some or all of the capital from the trust. 

    By blending the different types of trusts above as well as various other trusts that may be available to you such as a discounted gift trust and / or loan trust, we can help ensure that your portfolio is managed effectively over time.

    This will help not only support your own requirements but also ensure that you are passing on your wealth in an efficient manner. 

    Get easy-to-understand expert advice on a complex subject

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